SEC wants defendants to pay own penalties

The Securities and Exchange Commission is refusing to approve fraud settlements with companies and executives unless the defendants agree to pay civil penalties out of their own pockets.

"It's critical when we take money for a civil penalty, which involves a serious wrong, the money not circle back into the hands of those who have been involved in the wrongdoing," said SEC Commissioner Harvey Goldschmid.

Goldschmid, one of two Democrats on the five-member SEC, also said the agency should consider requiring defendants to admit they violated securities laws rather than use boilerplate language saying they don't admit or deny wrongdoing.

The SEC first required that violators pay their own civil penalties, rather than have insurance or the company pick up the costs, in April with the $1.4 billion settlement with Citigroup Inc. and nine other Wall Street firms over biased stock research. The new policy, which was instituted without public announcement, is intended to further punish executives and companies that commit fraud.

"This is a critically important policy change to create appropriate deterrence and accountability," Goldschmid said.

The SEC also applied the policy to the $3 million fine against six former top Xerox Corp. executives in an overall $22 million settlement earlier this month.

In these cases, the settlement language says defendants cannot rely on indemnification or insurance policies to cover the fines.